Energy Market Overview: The price development of universal electricity service is determined by the outlook of the CO2 market

The universal service price received more attention last week than the exchange price of electricity. Customers who have switched from the exchange price to the new service no longer have to closely monitor Nord Pool prices, but should be aware of CO2 prices that directly affect the universal service.

Price zone

Average exchange price

Change (previous week)


242,4 EUR/MWh



344,6 EUR/MWh



346,7 EUR/MWh



241,5 EUR/MWh


The average price of electricity last week in Estonia was 242.4 €/MWh (+16.8 €/MWh compared to the previous week). The price was most expensive on Friday at 20:00 with 592.95 €/MWh, while cheapest at 3:00 on Thursday with 12.66 €/MWh.

The price of the universal service was revealed in Estonia last week. The production price agreed by the Competition Authority can change depending on input prices, and one of the most important and volatile components of these inputs is the price of CO2. Therefore, if we wish to understand how the universal service price might develop, we should look at the CO2 price forecasts. The price of EUA or tradable CO2 allowance has mostly been in the range of 75-95 euros per ton since last December. Last week's average CO2 price was 67.2 €/t (-2.5 €/t compared to the previous week), so, rather cheap and below the annual average.

The peculiarity of the EUA market is that the supply of quotas to the market and the pricing is fully under the control of the European Commission. The demand is artificially created based on the European climate policy. The CO2 market has so far been one of the main and most effective tools for achieving Europe's climate goals. The price is not controlled in the short term and the market has often been very volatile. However, the direction of the price forecast is known in the long term, as it reflects Europe's climate goals, and in order to achieve them, the price of CO2 must increase. The energy crisis has paused this trend for now, but Europe has not given up on its climate goals.

Consumers who have affordable fixed-price long-term packages should definitely think about whether it is worth switching to universal service that is a few euros cheaper. In the event of a significant increase in the price of CO2, it will be transferred to the universal service price as well.

Colder weather will boost Europe's gas consumption despite calls for savings

The energy ministers of the European Union reached an agreement last week on compensation measures for high electricity prices. The measure imposes an obligation on countries to reduce electricity consumption during peak hours by 5% and, as a recommendation, to reduce total electricity demand by 10%. Also, an income ceiling of 180 euros per megawatt hour will be set for all electricity producers not using gas. Companies producing fossil fuels will have to pay profit tax in future. According to the Estonian Minister of Economy, Estonia will not impose this on shale oil producers, and the money left over from the income ceiling for electricity producers must be directed to green investments instead of the state budget.

The International Energy Agency (IEA) predicts a further decrease in the current record low gas consumption in Europe next year, the main reason being the drying up of the Russian supply route and the resulting high prices. Consumption in OECD’s European countries has decreased by 10%, next year it will decrease by another 4%, according to the IEA. The industrial sector and energy production will reduce gas consumption the most.

The European Union encourages a voluntary 15% reduction in gas consumption. If this is not done and Russia were to stop its still functioning gas supplies via Belarus and Ukraine, the storages could be depleted to a critical level of 5% by February and cause disruptions should the winter be cold and long, the IEA estimates.

Although imports of liquefied natural gas (LNG) have been greatly increased, consumption must nevertheless be significantly reduced. The biggest challenges are ahead for countries in the Russian gas trap, such as Germany, where consumption should be reduced by a fifth compared to the average of the last five years. So far, it has been primarily done by industrial companies, but especially in the chemical industry at the cost of stopping production.

Germany’s problem, however, lies in the fact that private consumers and small companies, despite social messages, have increased their gas consumption by 14.5% compared to the average of the last five years when the first cold days arrived. If people do not change their behaviour, there can be a shortage of gas in the winter, the head of the company responsible for the German gas network warns. The increase in anxiety is shown by the fact that, while previously a cold winter was thought to be the real challenge, now a normal winter may also cause serious problems for Central Europeans. So, they look at the weather forecast in the hope that the winter would not come this year.

Nord Stream gas pipelines became a major environmental hazard

People’s surprised and worried eyes turned to the Baltic Sea, where large-scale leaks of the Nord Stream gas pipeline connecting Russia and Germany were discovered. As a result of leaks, supplies through these can be cut off forever, as seawater entering the pipes corrodes them. The gas market was not greatly affected by the event, as gas had not been supplied from Russia to Europe through it for some time. However, it is one of the biggest environmental accidents in the Baltic Sea in recent times, for which it seems that no one was prepared.

Methane released into the air over the next 20 years will be an 80 times more dangerous greenhouse gas than the CO2 produced by burning it. The causes of the leaks are not yet known, but since Russian sabotage is suspected in the explosions that caused them, Norway, which currently supplies Europe with natural gas, together with its NATO allies, significantly strengthened security in the area of its pipelines. Thus, Russia's war against Europe has reached a new and dangerous stage.

Gazprom added another chapter to Europe's energy crisis last week by suspending supplies to Italy. Italy, which used to import up to 40% of its gas from Russia, has strongly reduced its dependence with the help of North African countries and should cope with the new situation. Compared to the beginning of the year, gas supplies from Russia to Europe have decreased more than six-fold. Italy also sent the navy to guard its pipelines after the Nord Stream leak was discovered.

The average gas price for the week was 188.7 €/MWh, being 0.8 €/MWh more expensive compared to the previous week. After Nord Stream gas pipelines started to leak heavily at four points as a result of explosions, the price of gas rose significantly, to 33.4 €/MWh. The price rose for only two days and started to fall already on Thursday, as the fundamental supply situation did not actually change: the market had not counted on the gas coming from Russia via Nord Stream for this winter. The promises of the leaders of the governments of the European Union and member states to come up with new energy crisis mitigation measures this week also helped bring down the price. Among other things, the idea of establishing a ceiling on the wholesale price of gas is not off the table, even though it would not generate more gas.

There are more and more warnings coming from the European agricultural sector. Fertilizer producers are closing factories due to high gas prices, because cheap Russian natural gas has been the input for the production of nitrogen fertilizers until now. Now farmers have to look for emergency solutions, as both fertilizers and energy are unbearably expensive. For clarification, about 80% of industrially produced ammonia is used in fertilizers. While at the beginning of 2021, a ton of ammonia cost less than $300, the current price is over $1,300.

OPEC is considering cutting production by 1 million barrels a day as the price of a barrel fell to $82 last week. A decision is expected this Wednesday. China announced last week that it would increase its exports of petroleum products by 15 million tons in a bid to boost their economy battered by the coronavirus pandemic.

A lot of offshore wind turbines will be built near Åland in the coming years

There is also positive news from the Baltic Sea region. Namely, the Swedish wind energy developer OX2 AB and investment company Alandsbanken Fondbolag announced that they plan to build two offshore wind farms near Åland, which as a whole would be the largest of its kind with a capacity of 9,000 megawatts. The size of the investment is estimated at more than 20 billion euros, and the investment decision is planned for 2025 or 2026.

The goal is to supply 1,500 MW of wind energy to the market already by 2024, which would have a noticeable effect on prices in Estonia. More wind energy would reduce dependence on Russian gas as well, as the Baltic and Finnish gas plants would then have to be started less often and expensive gas would be available for longer.

Europe's largest nuclear reactor, Finland's Olkiluoto 3, reached its maximum production capacity of 1,600 megawatts in the middle of last week. The plant is still in its testing stage, the start of normal energy production is planned for December. Olkiluoto's three nuclear units now produce 40% of Finland's electricity.

However, Norway said it would increase oil exports to European refineries to help replace oil from Russia shipped by sea, after sanctions hitting it in early December.

The plants in Narva were available last week with 732 MW on average. Unit 3 of Eesti Power Plant, which is undergoing its long-planned annual maintenance, will be off the market until the end of this working week; Auvere Power Plant has been under similar maintenance since Monday and will be back on line on 18 November.

The price of electricity is formed on the power exchange for each hour depending on the production capacity and consumer demand for that particular hour, as well as on transmission limitations between countries.

_Olavi Miller, Market Analysis Strategist at Eesti Energia_

The market overview has been prepared by Eesti Energia according to the best current knowledge. The information provided is based on public data. The market overview is presented as informative material and not as a promise, proposal or official forecast by Eesti Energia. Due to rapid changes in electricity market regulation, the market overview or the information contained therein is not final and may not correspond to future situations. Eesti Energia shall not be responsible for any costs or damages that may arise in connection with the use of the information provided.